TRADING UPDATE

Software operation puts the skids under Datatec’s profit

Earnings per share are expected to drop by as much as 93% to 1.4c

Datatec’s share price fell 7.24% to close at R56.50 after the technology firm said headline earnings per share for the year to February would plummet 90% to 2 US cents.

Earnings per share are expected to drop by as much as 93% to 1.4c. Datatec said the earnings fall was as a result of a "worse-than-expected" performance by Westcon. The subsidiary’s business was disrupted as a result of the final SAP software implementation in Europe, Middle East and Africa.

Mergence Investment Managers portfolio manager Peter Takaendesa said the trading update was weaker than expected and the weaker macro environment appeared to have also played a part in most of its operating regions. "They experienced the same SAP system implementation disruption in North America a few years ago but fortunately the recovery in that sales post was quick, so we will have to see if their [Europe, Middle East and Africa] operations recover quickly also."

Mvunonala Asset Managers equity analyst Matthew Zunckel said the update reflected continued difficulties and cost overruns on the software implementation. The poor operational performance in Westcon would likely give the potential buyer cause for concern, he said. "If the deal falls through, there may be significant downside to the share price, given that the recent rally in the share price has purely been on the back of a potentially value-accretive deal on Westcon," said Zunckel.

Datatec said its Logicalis subsidiary performed in line with expectations, with revenue of $1.51bn from $1.53bn.